Industrial output falls in the euro zone's three largest economies in September strengthened the view that the bloc is already in a recession which may be deeper than expected and will last through most of 2009.
France's output drop of 0.5 per cent looked almost healthy compared with the record declines of 2.1 per cent in Italy, which also reported today, and 3.6 percent reported on Friday by Germany, the area's largest economy.
Bank of America economist Gilles Moec said the latest figures suggested the euro zone ground to a halt earlier than previously thought and there was a possibility of at least five consecutive quarters of negative growth.
"The basic idea was that we had stagnation, and then the credit crunch in September and October would turn it into recession, but the figures we are seeing now suggest things turned sour earlier than we thought," he said.
"What we are faced with now is something close to the 1992/93 recession, and it could possibly be even worse."
The three nations make up more than two thirds of the euro zone economy.
Output in both France and Italy was weighed down by a sharp decline in car manufacturing, a sector hard hit by the credit crunch and the downturn in consumer demand.
The 0.2 per cent euro zone growth contraction between April and June was the first since monetary union was launched, and even before the latest output figures analysts polled by Reuters were forecasting a third quarter contraction of the same size.
Analysts define recession as two consecutive quarters of negative growth.
Italy's output drop was the steepest since December 1998, pointing to a recession which analysts said could prove long and deep for an economy which has been one of the euro zone's most sluggish growth performers for at least a decade.
A Reuters poll had projected a 1.6 percent output drop, but analysts said a sharp downward revision to August's data shed an even worse light on the September data.
"The problem is that the indicators for October are worse than for the third quarter, I fear the fourth quarter may be worse than the third," said Marco Valli of Unicredit MIB.
He forecast Italian GDP would fall 0.4 per cent in the third quarter after the 0.3 per cent drop in the previous three months, while euro zone growth would contract by 0.1 per cent when preliminary data is published on Friday.
Reuters